NEWS
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FOR IMMEDIATE RELEASE:
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CONTACT:
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Chris Barry
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December 5, 2011
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Communications Coordinator
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Florida’s Property Insurance System:Underfunded & Overexposed
TALLAHASSEE — An analysis of Florida’s hurricane insurance system clearly shows that
reforms are needed to better protect those who reside in Florida from risk of
severe financial pressure from hurricane losses, according to Reducing the
Concentration of Risk in Florida’s Property Insurance System, a report
released today by Florida TaxWatch, the nonpartisan, nonprofit, research
institute and government watchdog. According to this analysis, combined with
the report Risk & Reform, released by Florida TaxWatch in November,
the two state-backed components of the system, Citizens Property Insurance
Corporation (CPIC) and the Florida Hurricane Catastrophe Fund (FHCF), are
underfunded and overexposed.
“The current insurance system puts taxpayers on the
hook for potentially billions in assessments, while providing little assurance
that their claims will be paid in the event of a catastrophic hurricane or
series of hurricanes,” said Dominic M. Calabro, Florida TaxWatch President and
CEO. “This independent analysis highlights some of the problems with CPIC as
the largest component of the system, recommends needed reforms, and analyzes
proposed solutions.
One of the tenets of insurance is to diversify risk
so that losses are not correlated with each other; however, the financial risk
of damage from a hurricane hitting Florida is largely concentrated within CPIC
rather than being spread around the country and the globe. As of November 2011,
CPIC had 1.47 million policies extending approximately $512.8 billion of
property coverage to Floridians. This is a substantial number of policies, a
large percentage of Florida’s total residential exposure, and 99.9 percent of
the $512.8 billion in exposure is held within the state, compounding the
instability within CPIC.
In addition to the concern created by CPIC
concentrating financial exposure within Florida’s borders, this Florida
TaxWatch analysis identifies several other problems originating from CPIC that
adversely affect the rest of Florida’s property insurance system and taxpayers:
the eligibility requirements to obtain a CPIC policy have been lowered enabling
significant growth in policy numbers, making CPIC no longer the “insurer of
last resort”; the concentration of exposure in high-risk areas of the state
places financial liability on the remainder of the state’s policyholders to pay
for hurricane damages; CPIC’s artificially low rates and ratio of the amount of
exposure held within CPIC to cash-on-hand to pay claims being nearly 100 to 1;
and the Glide Path implemented in January 2010, intended to gradually make CPIC
rates actuarially sound, is insufficient to do so in a reasonable period oftime.
CPIC influences the Florida economy even in years
without hurricanes, because of the potential of assessments which likely
dampens capital investment in the state. Furthermore, this dissuades insurance
companies from entering the Florida insurance market, making the market even
less competitive.
“Any proposals to fix this situation should aim to
have CPIC set market-oriented rates, restore CPIC to truly being the “insurer
of last resort” as it was intended, and include a quantitative analysis to
ensure the proper protection of Florida taxpayers,” said Calabro.
Click here to view this report: Reducing the Concentration of Risk
Click here to view the Florida TaxWatch November
report on the hurricane insurance system as a whole: Risk
& Reform
This report continues our ongoing look at Florida’s
insurance systems. For previous research on this topic, please see the Florida
TaxWatch April 2010 Special Report, “Florida’s Financial Exposure from Its
‘Self Insurance’ Programs,” available here.
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